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Write off outstanding invoices

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When a client company goes into liquidation, how long should I wait to write off the debt? Is it appropriate to write off the whole of the outstanding invoices and then, if there is any dividend from the liquidator, include that in the current period income at that time?
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ATO Certified

Anonymous

Replies 2

 

Generally for a deduction to be claimed for a bad debt two conditions need to be satisfied:

(i) the debt must be written off as bad during the income year in which the deduction is claimed; and

(ii) it must have been returned as assessable income, unless the taxpayer is in the business of money-lending. In the case of a debt relating to a money-lending business, the debt only has to be written off as bad to be deductible 

 

There are different circumstances under which a company debt will be accepted as bad before it can be written off.

 

If we use your example, when the receiver or liquidator advises you as the creditor of the amount expected to be paid in respect of a debt, the remainder of the debt is accepted as bad when the advice is given. At that point you can claim a deduction for the remaining amount of debt.

  

All of this and other circumstances are in a Tax Office Public Ruling - TR92/18 refer para 4, 26, 31(d), 33, and 62

 

Further information -  telephone the ATO on 13 28 66

 

or you can seek written advice in the form of an ATO Private ruling: Applying-for-a-private-ruling

3 REPLIES 3

Best answer

ATO Certified

Anonymous

Replies 2

 

Generally for a deduction to be claimed for a bad debt two conditions need to be satisfied:

(i) the debt must be written off as bad during the income year in which the deduction is claimed; and

(ii) it must have been returned as assessable income, unless the taxpayer is in the business of money-lending. In the case of a debt relating to a money-lending business, the debt only has to be written off as bad to be deductible 

 

There are different circumstances under which a company debt will be accepted as bad before it can be written off.

 

If we use your example, when the receiver or liquidator advises you as the creditor of the amount expected to be paid in respect of a debt, the remainder of the debt is accepted as bad when the advice is given. At that point you can claim a deduction for the remaining amount of debt.

  

All of this and other circumstances are in a Tax Office Public Ruling - TR92/18 refer para 4, 26, 31(d), 33, and 62

 

Further information -  telephone the ATO on 13 28 66

 

or you can seek written advice in the form of an ATO Private ruling: Applying-for-a-private-ruling

Newbie

Replies 1

Thanks for that answer. I understand the bad debt will be written off in 2018. The invoices were raised in June 2017 (previous financial year) for around $350k in assessable income and the debtor companies were placed in liquidation in July 2017 with the liquidator assessing by my estimate around 12c in the dollar as an expected return (reported October 2017). This means tax was assessed and due for 2017 but the debt is written off in 2018. I've been told the tax assessed and paid in 2017 can't be claimed back as a credit from 2017 when filing the substantial loss in 2018. The loss can only be carried forward to the future - but the company hasn't traded since June 2017, so has no expected future income. This doesn't seem fair as the bad debt relates to the income in 2017 that was never paid. Can someone confirm that this is correct, please?

Community Support

Replies 0

Hi @DougParry,

 

Welcome to our Community!

 

We provide general information here relating to tax and super topics, however your situation is more complex. You can contact our insolvency team on 1300-303-570, option 1 between 8am - 6pm. Monday to Friday to discuss further with an operator.

 

Thanks, JodieH.

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